Seo Jung-jin "Complete merger of three companies within next year... Buyout rights will not exceed 1 trillion won"

Plans for Full Merger of Three Companies Including Celltrion and Healthcare Within the Year
Complete Merger of Pharmaceutical Company Within 6 Months

Key Issues in Merger: Sales Decline and Buyout Rights
Immediate Concern Over Halving Annual Sales... "12 Trillion KRW Target by 2030"
Minority Shareholders Mostly Opposed to Merger

The merger roadmap for the three siblings of the Celltrion Group?Celltrion, Celltrion Healthcare, and Celltrion Pharm?has been unveiled in a surprise announcement. First, Celltrion and Celltrion Healthcare will complete their merger within this year to launch an integrated Celltrion, and then by next year, Celltrion Pharm will also be merged to establish a comprehensive pharmaceutical company encompassing both chemical drugs and biopharmaceuticals.

On the 17th, at an online briefing, Seo Jung-jin, Chairman of the Celltrion Group, stated, "We anticipated many procedural difficulties and complex shareholder interests if all three companies pursued the merger simultaneously. Therefore, we decided on a first phase merger between Celltrion and Celltrion Healthcare this year, and after completing that merger, we will pursue the second phase merger with Celltrion Pharm within six months." The announcement after market close on the same day only disclosed the merger between Celltrion and Celltrion Healthcare, dispelling speculation that Celltrion Pharm might be excluded and reaffirming the firm intention to merge all three companies.

The first merger will proceed with Celltrion absorbing Celltrion Healthcare. The merger price is set at KRW 148,853 for Celltrion and KRW 66,874 for Celltrion Healthcare, with existing Celltrion Healthcare common shareholders receiving 0.449262 shares of Celltrion common stock per one share held.

The shareholders' meeting to approve the merger will be held on October 23. Following that, there will be a stock purchase request period until November 13, and the merger date is scheduled for December 28, aiming to complete the merger by the end of the year. After the first merger, the integrated Celltrion is expected to have a shareholding structure with Chairman Seo holding 3.7% and Celltrion Holdings holding 21.5%, giving about 25% control.

Immediate sales will be 'halved' after merger... "We will achieve KRW 12 trillion in sales by 2030"

The biggest risk in the merger is the decline in sales. The company estimates the integrated Celltrion’s sales to be around KRW 2.3 trillion this year. This is a halving compared to last year’s sales of KRW 2.284 trillion for Celltrion and KRW 1.972 trillion for Celltrion Healthcare. This is due to the unique division of labor within the Celltrion Group, where Celltrion develops and manufactures biopharmaceuticals, and Celltrion Healthcare handles overseas distribution. Because there is no direct equity relationship between the two companies, the sales from Celltrion supplying drugs to Celltrion Healthcare and the sales from Celltrion Healthcare selling drugs overseas have been separately recorded as distinct revenues. Therefore, once the integrated Celltrion is launched, the supply performance from Celltrion will be offset, causing a sharp drop in sales.

In response, the company explained that although there will be an immediate sales decline, future sales growth through synergy is expected. They plan to achieve KRW 3.5 trillion in sales and KRW 1.6 trillion in EBITDA in 2024, and aim to increase sales to KRW 12 trillion by 2030. In particular, while maintaining growth in their current core business of biosimilars, they aim to continue new drug development and increase the sales proportion of new drugs to 40%.

Celltrion's 'Remsima SC' model
Photo by Lee Chunhee

The spearhead of the new drug division is 'Remsima SC.' It is a subcutaneous injection (SC) formulation of infliximab, a treatment for autoimmune diseases. All existing infliximab drugs, including the original 'Remicade,' were intravenous (IV) formulations. However, after hearing opinions from local European medical professionals about the need for greater convenience, Chairman Seo personally directed the development of the SC formulation, which has become the first and only infliximab SC drug to date. Considering these advantages, the U.S. Food and Drug Administration (FDA) recommended that Celltrion proceed with the new drug approval process first, which is currently underway.

Chairman Seo said, "Jimpentra (the U.S. new drug brand name for Remsima SC) is sold at a price at least four times higher and is protected by patents for 15 years, so there is little concern about price reductions due to the original product." He projected, "The market will be KRW 700 billion in 2024 and over KRW 3 trillion by 2030." Additionally, new drugs such as immuno-oncology agents and treatments for breast and stomach cancer, targeting first clinical trials next year, are also expected to generate sales by 2030. Furthermore, the group plans to expand its biosimilar business, aiming for sales of about KRW 7 trillion by 2030.

Production capacity expansion will continue. Chairman Seo emphasized, "We have already secured up to the third plant, establishing a foundation to minimize reliance on contract manufacturing organizations (CMO) for supply. If necessary, we will invest in a fourth plant and are actively considering investments in other countries, including the U.S."

If stock purchase requests exceed KRW 1 trillion, merger could fail... "We have countermeasures even if exceeded"

The biggest issue for the merger is the stance of minority shareholders. It is known that there is a prevailing opposition among minority shareholders who believe that total sales will decrease after the merger, limiting stock price growth potential. Shareholders opposing the merger can exercise their legally guaranteed right under the Commercial Act to request the company to purchase their shares at a certain price, known as the stock purchase request right. Currently, Celltrion has set a purchase price of KRW 150,813 per share, and Celltrion Healthcare at KRW 67,251 per share, with a combined purchase limit of KRW 1 trillion. The companies have also disclosed that if the purchase requests exceed this limit, the merger could be canceled.

However, Chairman Seo expressed confidence, saying, "Since the stock price is undervalued, I believe KRW 1 trillion will be sufficient," and does not expect requests to exceed the limit. He also stated, "We have countermeasures in place if requests exceed KRW 1 trillion," indicating the intention to proceed with the merger even if the limit is surpassed. Additionally, cash dividends for shareholder returns will be expanded. Chairman Seo said, "We will become a company that returns cash dividends competitively," and "We will strive to increase cash dividends up to 30% of profits."

With the lead manager selected last month, the merger process has already been signaled to begin, and since Chairman Seo has stated there will be no restructuring, internal unrest within the group is reportedly minimal. Seo explained, "We do not have excessive or redundant personnel, so there are no plans for workforce reduction through restructuring," and regarding organizational integration, "Only some management parts need to be integrated, but it is not expected to cause major conflicts and will not take a long time."

Chairman Seo also emphasized his commitment to actively promote the merger. He said, "After simulating the future of the merged entity from various angles, I am confident this is a good and wise decision," and added, "I will visit Singapore, Manhattan, and Boston, while Vice Chairmen Ki Woo-sung and Kim Hyung-gi will meet investors in Japan, Europe, and domestically to explain. My executives and I will do our best to ensure this is not an empty promise."

This content was produced with the assistance of AI translation services.